December 1998 Update

Michael McGregor & Thomas Spann

CONVERGENCE/DIVERGENCE

Late in November America Online (AOL), the world's largest Internet access provider with about 14 million subscribers, announced plans to merge with Netscape. Netscape developed the Internet browser that, according to some estimates, is used by more than 40 percent of persons accessing the Internet. If the merger occurs, Netscape would acquire a powerful ally in its battle against Microsoft's competing browser, Internet Explorer. Netscape's almost total dominance of the Internet browser market declined dramatically after Microsoft began bundling Internet Explorer with its ubiquitous Windows operating system. It's expected AOL would begin promoting Netscape's browser among its new and existing subscribers following a merger. The merger would also provide easy access for AOL subscribers to Netscape's popular website. Some industry estimates suggest about 70 percent of web users visit either the AOL or Netscape websites at least once a month. Some analysts believe the merger of AOL, with its strong base in the consumer market, and Netscape, with its strong ties to the business community, could significantly alter the balance of power in the ever-changing Internet marketplace. The merger could also affect the government's suit against Microsoft for alleged antitrust activities.

RealNetworks is another Internet software company that is, perhaps, gaining some ground against giant Microsoft. RealNetworks' RealPlayer video and audio streaming software (see pages 12, 74, 148 and 269) competes with Microsoft's Netshow. Netscape recently began including RealNetwork's RealPlayer in the latest version of its browser. AOL is also distributing RealPlayer with the software it distributes to new subscribers. In addition, IBM is distributing RealPlayer to millions of people using its Lotus Notes software.

TECHNOLOGY

The cable and consumer electronics industries made progress toward resolving compatibility problems between digital TV sets and digital cable boxes last month. The parties agreed to the physical specifications for connecting the boxes to the DTV receivers. But content producers and distributors remain concerned about content piracy in the digital age (see pages 61 and 146) . Developing technology to prevent the perfect copying of digitally encoded programs by tapping the data stream between digital cable boxes and DTV receivers remains a trouble spot. Broadcasting and Cable reports a technology called 5C developed by Sony, Matsushita, Intel, Hitachi and Toshiba provides such safeguards. The report says 5C allows compliant set-top boxes to pass the signal to compliant DTV receivers, but restricts it from non-compliant VCRs, for example. However, some of the major TV set manufacturers, including Thomson Consumer Electronics (RCA) and Zenith, don't support 5C technology. There is the possibility consumers who buy these non-compliant sets may have trouble receiving copy-protected transmissions once copy protection technology becomes widely available. Early obsolescence may be another, less obvious, part of the high price paid by early purchasers of DTV sets.

The Emergency Alert System (EAS) designed to warn broadcasters of national, regional, and local emergencies is still having teething problems after almost two years in service. EAS replaced the Emergency Broadcast System (EBS) in 1997 and was initially viewed as a less error-prone system. The system seemed to work well until one of the major sources of emergency information, the National Weather Service, updated its digital coding of alert messages. These new digital codes are interpreted differently by the various brands of EAS decoders used by broadcasters, resulting in missed messages and failure to trigger emergency alerts. Equally vexing for broadcasters is the synthesized "computer voice" announcing these alerts. "The voice" is supposed to improve reaction time by eliminating the need for local announcers to read alert bulletins: the synthesized voice can be broadcast directly on air. But the quality of "Perfect Paul," as some broadcasters have called the synthesized voice, is so poor many say they refuse to air it. You can judge for yourself by listening to a sample of "Perfect Paul" at www.nws.noaa.gov/oso/oso1/oso12/document/crs2txt.wav.


COMMERCIAL OPERATIONS

Internet advertising is growing faster than most experts predicted (p. 175). Online advertising in 1998 is expected to reach $2 billion, a figure even the most optimistic forecasters did not expect until 2000. According to an article in the Wall Street Journal, audience targeting is becoming more sophisticated on the Internet and costs per thousand are nearing the same levels as advertisers would achieve with magazines or television.

Moreover, a recent survey of 127 online retailers indicates that Internet commerce will reach $13 billion this year. The four top-selling categories of online purchases are computer goods, entertainment, travel, and discount brokerages. According to the study, reported in the Washington Post, the Internet is bringing in new customers rather than siphoning customers from stores or catalog sales.

When NABET (p. 184) staged a surprise one-day strike against ABC in early November the network responded by locking out the union workers. The lockout continues as of the date of this update. The dispute ostensibly began over medical benefits but since has devolved into a disagreement about whether new jobs in the digital era will be union jobs. ABC wants the flexibility to hire non-union employees for certain positions.


PROGRAMMING

There's encouraging news for radio broadcasters in a report of online radio users (see page 269). A report by Arbitron and Edison Media Research indicates some 19 percent of Americans who use the Internet have listened to radio online. This was much higher than many expected. Broadcasters may also take some comfort in knowing about 60 percent of the respondents said they would be most interested in listening to their favorite local station online. Respondents say they are much more interested in community event and concert information available from radio station websites than DJ information and photographs. They also indicated a strong interest in being able to see the products being advertised on the station and 40 percent would like to have the option of printing out coupons they could use to get discounts from the advertisers. You can read a summary of the report at www.edisonresearch.com.

The FCC is pushing broadcasters to provide more and better children's TV programming (see page 252), but the Annenberg Public Policy Center reports mixed progress in its annual study of kidvid. The 1998 study shows there is a considerable amount of children's programming available, but very little during the prime time hours. The amount of programming targeted to teens and pre-teens has increased, but the quality of that programming is questionable. And the Center says the percentage of "highly educational" network programs declined from 43 to 29 percent between 1997 and 1998. The report also says parents are, generally, unaware of the FCC's requirement that stations provide a minimum of three hours of educational programming designed for children each week. The report goes on to say networks and stations are failing to display consistently the "TV-FV" icon to identify kids' programs with fantasy violence. The report urges broadcasters to do a better job of labeling and promoting their children's fare, noting a disconnect between public policy and public understanding in the area of children's programming.

Perhaps there's reason for hope after all. Reports indicate at least two popular websites, CNN Interactive and Broadcast.com, recorded new records of people trying to view the liftoff last month of the Discovery space shuttle carrying pioneer astronaut John Glenn. Interest in watching the event online exceeded the demand for access to the Ken Starr report dealing with the Clinton-Lewinsky investigation earlier this year. CNN says its site at one point received almost a half million "hits" a minute from people wanting access.


RATINGS

It seems NBC's reign as the dominant prime time broadcast network may be over, but just barely. CBS estimates it beat NBC by one-tenth of a ratings point in the November sweeps (see page 278). But the November ratings are hardly good news for CBS. Although beating NBC, CBS's sweeps ratings were off about 10 percent from the previous November. The share of the audience for the four largest networks (CBS, NBC, ABC and Fox) was lower in November 1998 than a year ago. Only The WB showed a year to year increase in its numbers from the previous year. UPN took the biggest hit, down 36 percent the first week of November compared to the same period in 1997. In spite of UPN's miserable performance, executives at corporate parent Viacom say the loss was to be expected considering UPN is trying to shift and broaden its programming philosophy. UPN has previously depended heavily on minority-targeted sitcoms. As has been true for years, cable continued to eat away the broadcast network audience. Basic cable's share of the audience is now approaching 40 percent.

And speaking of CBS's ratings success, some pundits are criticizing 60 Minutes for airing the story that showed Jack Kevorkian injecting a terminally ill man with a lethal dose of drugs, calling it a ratings stunt. CBS responded by admitting that the segment was controversial but denied the allegation that ratings were a factor in airing the show. What do you think: good journalism or ratings manipulation?

Miami's WLTV(TV) may be the nation's first Spanish language station to be the top rated station in any U.S. market. WLTV(TV) took the top spot in both the February and May sweeps this year. Spanish language stations in six other markets also beat affiliates of the four major broadcast networks in the vital adults 18-34 demographic during prime time. The strong ratings for Spanish language stations reflect the increasing influence of a rapidly growing Hispanic population, especially in such cities as San Francisco, Los Angeles, Phoenix, Houston, and Miami.


REGULATION

In April a court decision invalidated the FCC's equal employment opportunity rules (p.340). Last month the Commission proposed new rules to replace the ones that were thrown out. The proposal suggests that broadcast licensees would be required to inform females and minorities of job vacancies and allow them to apply. Unlike the old requirements, under the new rules the FCC would no longer consider the composition of the licensee's workforce nor would it assess the effectiveness of its recruitment efforts.

After much delay, the FCC ruled in November that Direct Broadcast Satellite operators must set aside at least four percent of their channel capacity for the provision of public interest programming (p. 350). DBS operators will be allowed to decide for themselves what services will be provided on these specially designated channels. Some commenters had argued that a special programming board be created to decide what program sources the DBS systems should carry.

In the Telecommunications Act of 1996 Congress required broadcasters to pay a fee for any revenues they make by selling digital subscription services via their new digital television channel. The FCC was charged with determining how much the fee should be. Last month the Commission ruled that broadcasters would be required to pay a five-percent fee for such services, which might include subscription and pay-per-view programming, paging, wireless telephone service, and high-speed data delivery. Broadcasters had hoped the fees would be set at two percent; public interest groups argued the fees should be closer to ten percent. As the saying goes, if neither side likes the result, the decision is probably just about right.

We noted on page 370 that some journalists worried that the multi-million dollar judgement against ABC over its newsgathering techniques might chill investigative reporting. A recent survey conducted by the Center for the Advancement of Modern Media at the University of Miami provides seemingly inconsistent data on the chilling question. On one hand, twenty percent of television news directors have killed news stories due to fear over lawsuits and another 28% reported omitting key information in news stories for the same reason. On the other hand, in an effort to increase attention to their stations by breaking "riskier" stories, 63% of news directors indicated they use hidden cameras and microphones as a means of collecting information.

Finally, we mentioned in last month's newsletter that Congress once again passed legislation attempting to shield minors from Internet pornography, this time via the Child Online Protection Act. Opponents of the Act immediately challenged the new legislation in court. By the middle of November a federal court judge had issued a restraining order that prohibits the government from enforcing the Act while the lawsuit is being considered.


INTERNATIONAL

We sometimes forget, but the conversion from analog to digital television is not an exclusively American phenomenon. It is also important to remember that the FCC-adopted DTV standards for United States broadcasters (see page 79 and Section 5.7) are not being adopted universally. The U.S. DTV system has been adopted, or is being considered for adoption, in Canada and Mexico, as well as Japan, South Korea, and China. If Mexico adopts the U.S. system, it is thought many Central American nations will follow. The decision of Brazil and Argentina will influence many South American nations. In Europe digital television is dominated by another system known as DVB-T (Digital Video Broadcasting-Terrestrial). TV Technology reports the DVB-T standard has been adopted by 17 nations, 15 of them members of the European Union along with Australia and New Zealand. So far none of the European nations adopting the DVB-T standard offer digital service in a wide screen format.